Export Diversification through Bonded Warehouse Reforms
Benefits and rules of bonded manufacturing are often discretionary. Bonded manufacturing is a form of temporary admission, which is equivalent to suspended import duty. The term used varies from country to country: Special Bonded Warehouses (SBW) i...
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| Language: | English |
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/275881537421782651/Bangladesh-Policy-Notes-Export-Diversification-through-Bonded-Warehouse-Reforms http://hdl.handle.net/10986/30551 |
| Summary: | Benefits and rules of bonded
manufacturing are often discretionary. Bonded manufacturing
is a form of temporary admission, which is equivalent to
suspended import duty. The term used varies from country to
country: Special Bonded Warehouses (SBW) in Bangladesh,
Export Only Units in India, Bonded Manufacturing Warehouses
in Malaysia, etc. The rules under which they operate also
vary substantially from country to country and have changed
over time. Bonded manufacturing status allows firms to bring
imported goods into their warehouses without paying import
duty, use the goods in their production, and export the
output. The firms can usually also import machinery and
replacement parts and other supplies duty-free, and buy from
domestic suppliers free of domestic excise, sales and other
taxes. The participating factories operate under the
supervision of Customs authorities, who check the import and
export containers going to and from the bonded factory, or,
in some cases, rely on spot checks of the factory's
inventories. The benefits and rules are at the discretion of
the governments. The success of the bonded warehouse
facility is not equitable and inclusive in Bangladesh.
Bangladesh’s customs bonded warehouse regime permits
licensed manufacturers to import duty-free parts and
materials required for their export production purposes. The
regime is most heavily used by RMG producers and to a lesser
extent by leather goods, footwear, and shipbuilding
industries. Enterprises can use the Special Bonded Warehouse
(SBW) facility for importing all inputs duty-free along with
imports of inputs under back-to-back LC (letters of credit),
a facility to pay for imported inputs from export proceeds.
This policy works to negate both the effect of relatively
high import tariffs and the difficulty in claiming duty
drawback on the export of duty-paid imported raw materials.
It ensures competitive pricing by exporters for their
manufactured goods as they compete in regional (and global)
markets. However, these schemes allowing the duty-free
import of inputs are not available equally to other sector
exporters, who must pay duties on imported inputs upfront
and rely on a dysfunctional duty drawback system that
involves transaction costs. Therefore, for non-RMG sectors,
a tariff on imports becomes a tax on exports on two counts:
(a) the higher cost of imported inputs and (b) the higher
tariff-induced profitability of Import Substitute Industries
that divert resources away from exports. |
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